The aim of this project work is directed toward the identification and analysis of the functional impacts of the microfinance banks on the grass-root economic development in Nigeria. This idea by the government was mooted to cater for the financial needs of people at the lower rung of the ladder in the society as aptly put forward by the Governor of Central Bank of Nigerian (CBN), Professor Charles Soludo.

Relative Literature and previous works on banking industry in Nigeria were reviewed. Also brought to the purview of this research work was the CBN policy pronouncement in July 2004, of 1,150 percent increase in paid up capital of banks from N2billion to N25 billion with the main objective to reform, consolidate and strengthen the banking system so as to stem the systemic distress that continued to plaque the sector, and also to reposition the Nigeria banking system to compete favourably with foreign banks.

In the light of the probing questions raised, the research instrument used to get data on the peculiar impacts of microfinance banks were the personal interview, questionnaire administration as well as observation.

The data and information collected were analyzed and subjected to chi-square tests.

The result of the findings showed that Microfinance should be seen as the needed solution for the eradication of poverty. From this study, however, it was as well discovered that Microfinance of poverty could actually be used to speed up ‘the economic development at the grass-root level.

The research probed deeply to expose the likely bureaucratic bottle-neck that could hinder the operation of microfinance and various factors were outlined in their degree of severity.

In quest to keep the programme functional in the midst of all odds, measures that could be adopted to enhance the better performance and growth of microfinance banks as well as improving the standard ethical behaviour of their employees were suggested.